DHMS AGM 2013 - Highlights Feedback on Deloitte Review

Deloitte review - Background

• Most recent review commenced in November 2011 • Also requested by AGM motion in June 2012

• Deloitte commissioned by DHMS to perform independent review

• 9 months • 20+ local and global experts • 5 100 professional hours • Independent peer review by Health Monitor

• Deloitte was tasked to consider • The effectiveness of the Board of Trustees of DHMS in overseeing the outsourcing of

services to Discovery Health • The value received by DHMS in return for the administration and managed care fees

paid • The appropriateness of a single provider for both administration and managed care

services

DHMS governance model subject to periodic independent review

Deloitte review – Key findings

Deloitte findings

DHMS is led by a strong and competent Board with no

governance failures

1

2

3

6

5

4

DHMS outperforms all benchmarked schemes

in the Deloitte Performance

Model

For every R1 spent on admin and managed care fees, a return of

R1.77- R2.02 is generated for DHMS

Members are R147 better off each month

due to the DHMS value proposition

DHMS benefitted from 27% reduction in admin fees over past

5 years

Integrated model costs less and delivers better

performance

Available at www.discovery.co.za

DHMS action Date Improve assurance model

Dedicated compliance manager Assigned 2012

Dedicated risk manager Assigned 2012

Revised risk management process Implemented 2013

Independent audit of risk management Scheduled 2013

Enhance stakeholder engagement Enhance framework and strategy In progress

Independent communications consultant Appointed 2013

Enhanced marketing reporting Implemented 2013

Enhance oversight capacity of Scheme office Succession planning In progress

Assessment of needs Completed 2012

Appointment of Chief Financial Officer Appointed 2012

Appointment of Chief Risk Officer Under consideration

Appointment of Chief Stakeholder Relations Officer Under consideration

Administration and Managed Care contracts Align with best practice In progress

Align service level agreements In progress

Outsourcing managed in line with Act and Rules

-

DHMS fully compliant with the Act

DHMS led by competent and independent Board

Power of balance maintained by Trustees

Scheme office is experienced and highly competent

Information provided by DH is detailed and of high quality

Assurance model to be improved

Stakeholder engagement model to be enhanced

Oversight capacity of Scheme office to be enhanced

Continuously align contracts and SLA with DH

- - -

The effectiveness of DHMS in overseeing the outsourcing of services to Discovery Health

None

Positive Failure - Recommendation Legend:

DHMS action Date

Evaluation of economies of scale Ongoing ; Annual

Evaluation of non-healthcare expenses Ongoing ; Annual

Evaluation of value-for-money model Ongoing ; Annual

Outsourcing delivers value to DHMS

Note: Formal review of all categories commenced 2011

-

DHMS does receive value-for-money from DH

Members benefit from scale, skills and experience of DH

Fees paid to DH not a significant outlier to peers

DHMS does benefit from economies of scale

DHMS outperforms all peers in Deloitte Performance Model

Continued evaluation of benefits of economies of scale

Continued evaluation of non-healthcare expenses

Continued evaluation of value-for-money outcomes

- -

Transactional Governance

None

Positive Failure - Recommendation Legend:

DHMS outperform all benchmarked peers in Deloitte Medical Scheme Performance Model

Assess five main performance areas:

1. Financial strength 2. Growth and sustainability 3. Non-healthcare expenditure 4. Compliance, governance and

reputation 5. Quality and value for money

Data sources: CMS Annual Reports Medical scheme annual reports, statutory returns and public information

Administration and managed care fees are above average, but “not considered a significant outlier”

Solvency level below 25% seen as compliance issue, despite highest

possible marks for financial strength

Non-healthcare expenses relative to performance rank

Better performing schemes have higher non-healthcare expenses

Discovery Health delivers significant value to DHMS

0

50

100

150

200

250

300

Costs Return

Services Out-of-pocket savings

Impaired loss savings PBM

Non-quantifiable benefits

Every R1 spent on administration

and managed

care generates a return of

between R1.77 and R2.02 for DHMS and its

members

R84.92 pabpm to R120.34 pabpm value added to DHMS

Discovery Health enhances value for DHMS members

-

200

400

600

800

1 000

1 200

Industry DHMS

R11.43 pabpm NHE differential

R158.24 pabpm lower total contribution

R11 higher investment in administration and managed

care fees

results in R158 lower cost of contributions for members

Member contributions

Members are R147 better off

DHMS has an admin and managed healthcare fee target of 10% of total annual GCI to be reached by the end of 2014

12.7% 12.5% 12.0% 11.7%

11.0%

10.0%

2009 2010 2011 2012 2013 2014

2009

2014

Total administration and managed care fees as % of GCI

Actual

Target

Deloitte found that the Scheme benefited from a 27% reduction in administration fees in the 5-year period to end of 2011.

Since then, administration fees have reduced further, and is on track to reach the 10% of GCI target by 2014.

DHMS integrated operating model delivers best value for members

-

Integrated outsourcing model incurs on average 15% lower NHE than fragmented model

Integrated outsourcing model results in better scheme performance than fragmented model

Maintain integrated operating model

Operating Model

None

Positive Failure - Recommendation Legend:

DHMS action Date

Continue to enhance operating model through collaboration with DH

Ongoing

Continue to align with outsourcing best practice

Ongoing

Maintain balance of power through governance best practice

Ongoing

DHMS AGM 2013 - Highlights Feedback on Deloitte Review